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New product development (NPD) is most successful when a systematic process is utilized to create repetitive product or service commercialization. “Success” means hitting a sales volume target or profitability goal. In benchmarking studies, “success” also means that a firm is among the top performer for innovation in its industry.
The benefit of a systematic NPD process is that everyone throughout the firm, and including customers and suppliers, understands the status of a project in progress, the steps required for technical and market development, and the necessary market approvals. NPD processes do not have to be complicated and certainly should not be onerous, but the must ensure that each project is reviewed consistently and fairly. Moreover, NPD processes must be applied to every innovation idea, concept, and prototype within the firm. The most common NPD process is the Stage-Gate™ model, designed by Robert Cooper and documented in his famous book, Winning at New Products.
Benefits of a Stage-Gate Model
In a traditional stage-gate model for new product development, work on the product is done in “stages” and decisions are made at “gates”. About 80% of US companies use a stage-gate model for innovation today. Various incarnations of phased and gated models are utilized for traditional engineering and construction projects as well.
A key benefit of a phased process model, like a stage-gate system, is that investment risk is minimized. Relatively few dollars are committed in the early stages to study market opportunities and ideas. If the options prove out, then more money is invested to build prototypes and conduct customer tests. Then, if these experiments are also positive, further investment occurs to build or enhance manufacturing facilities and to formally commercialize the product. At any point in the process, a project can be killed if the tests do not return expected outcomes. In this way, the investment in any given idea is minimized and risk-adjusted.
Steps in a Traditional NPD System
A traditional NPD process, like a stage-gate system, is considered a “waterfall” approach to project management. As
water flows downhill, it cannot flow uphill to return from whence it came. Likewise, once a step in the stage-gate framework is completed and funding is consumed, it is not easy to go back and repeat a prior step. However, the purpose of the gate decisions is to validate prior work on the project and to approve future plans. Assuming that all work is accurate, there should be no need to repeat earlier steps. Waterfall processes require that upfront planning and requirements are correct at the beginning of each phase. Traditional phases in an NPD process are as follows.
- Stage 1 – Opportunity identification
- Stage 2 – Concept generation
- Stage 3 – Concept testing
- Stage 4 – Technical development
- Stage 5 – Product launch and commercialization
In the “fuzzy front end,” investment is not high as there are typically no physical assets involved. The work done in these early phases (Stages 1 through 3) involves gathering market and customer insights, testing proofs and prototypes, and narrowing design characteristics of the new product.
Cautions in Deploying Stage-Gate Models
As with any waterfall process, the biggest disadvantage of stage-gate systems is the upfront planning. In theory, a traditional NPD process is designed to test customer feedback and gather end-user insights during each phase of work. Market attractiveness and customer need are major criteria reviewed at gates, and a project must deliver positive results for a project to pass a gate and move to the next stage. Customer interactions are built into the work and the approvals of each phase of NPD work.
In practice, however, many firms are sloppy in customer testing. After all, a lot of smart people work in the R&D department and have the greatest knowledge of technical advances in their field. Further, just asking a customer what s/he wants in a next generation product does not yield insights into disruptive innovations. And, finally, we often work on NPD projects that flow through the system because a high-level manager thinks the idea is great, even though there is not one iota of supporting data.
A traditional stage-gate system works for NPD. But, senior management must make tough and honest decisions at the gates. Projects that won’t deliver expected commercial value or solve a customer’s needs must be killed. Oddball product ideas that show promise must be nurtured, even if they appear to be outside the standard operating mantra of the firm.
Airbnb is an example of a new platform that pressed forward even when faced with multiple innovation and sales challenges. Customer insights were positive in concept tests and the market need was genuine. Tweaking how properties were photographed allowed Airbnb to move out of the technical development stage and into widespread, successful commercialization.
Traditional Stage-Gate Models in NPD
Traditional waterfall processes are successful in brining new ideas to market. A stage-gate system minimizes investment risk because each stage of work is carefully matched to escalating goals and objectives. When customer insights and feedback are held as sacred gate pass criteria, a traditional stage-gate system yields repetitive market successes.
To learn more about new product development management, check out self-study and other NPDP Workshops. Feel free to contact me at [email protected] or 281-280-8717. At Simple-PDH.com where we want to help you gain and maintain your professional certifications. You can study, learn, and earn – it’s simple!
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